BkartA publishes case report in Adidas matter

On 4 July 2014 the German competition authority, the BkartA, announced in a press release that Adidas had amended the conditions for the online sale of its brand products. The BkartA had investigated these conditions and come to the (preliminary) opinion that they were not consistent with competition rules. In a recently published case report, the BkartA explained its (preliminary) opinion.

The case
Adidas operates a selective distribution system for the sale of its products in which only authorised dealers may sell Adidas products. With effect from 1 January 2013 Adidas introduced new rules concerning online sales (e-commerce conditions). These new rules included a ban on sales via open online platforms like eBay and Amazon. Sales via a dealer’s own online store or private platforms like Otto.de and Zalando.de, however, was permitted. After numerous complaints from specialty sport shops, the BkartA launched an investigation into the e-commerce conditions of Adidas. The BkartA suspended this investigation after Adidas amended its e-commerce conditions.

Selective distribution
The BkartA stated first and foremost that a selective distribution system in principle restricts competition. Nonetheless it is possible that a selective distribution system might not be prohibited by the ban on cartels. This is the case if a number of requirements are satisfied. The properties of the particular product must be such that a selective distribution system is necessary in order to preserve the quality of the product and ensure correct use. The distributors must also be selected on the basis of objective criteria of a qualitative nature. These criteria must be applied consistently and without discrimination. Finally, the criteria adopted may not go further than necessary to preserve quality and ensure correct use of the product. If the selection criteria are not objectively justified, the selective distribution system does fall within the scope of the ban on cartels.

The BkartA pointed out that Adidas’s selective distribution system as such was not the subject of investigation. Only the extent to which the e-commerce conditions were permissible under competition law was looked at. In this the investigation focused on the per se ban on sales via open online platforms.

Assessment
According to the BkartA, its investigation indicated that a number of markets were affected by the per se ban. A separate market for football clothing was distinguished, for instance. The BkartA did not say whether separate submarkets could also be distinguished for clothing for other team sports, running or fitness. Since Adidas’s market share on the affected markets is higher than 30%, the Block exemption for vertical cooperation does not apply. The BkartA therefore tested the per se ban against the European and German bans on cartels.

The BkartA took the position that the per se ban is not necessary to preserve the quality of the Adidas products and ensure correct use thereof. After all, certain distribution channels were being excluded without any reliance on qualitative criteria. This meant that mainly small and medium-sized specialty sport shops were adversely affected. If they cannot use open online platforms, they have less chance of being found on the internet. This puts pressure on prices. In the BkartA’s view, the per se ban had the object of weakening price competition. As such, competition was noticeably restricted. This restriction was aggravated by the fact that the per se ban also restricted competition between various brands. Increased prices for Adidas products also reduce the competitive pressure for other brand products.

Can sales via online platforms be banned?
The BkartA is very strict. This press release shows that, in the BkartA’s view, a per se ban on sales via online platforms is very likely to come up against competition law objections. This does not alter the fact that a producer of brand products is permitted to impose requirements for how distributors sell their brand products. According to the BkartA, an efficient distribution system must be set up such that irrespective of the distribution channel (!) distributors are stimulated to invest in promoting the brand and give the desired information concerning it. A producer of brand products may therefore prescribe for its distributors that the qualitative criteria must also be complied with if the products are sold via online platforms and that customers must clearly be shown that they are seeing an offer from an authorised distributor.

Trend
The BkartA’s (preliminary) opinion discussed here is not an isolated pronouncement. A number of German courts have criticised a per se ban on sales via online platforms. The most recent of these is the Landgericht Frankfurt am Main. So there seems to be a trend. Although this trend has not yet reached the Netherlands, producers of brand products here would be wise to explicitly take into account the German pointers when setting up a selective distribution system. The trend can easily catch on.

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